Friday

April 2012 - UPS' First Quarter Results Disappoint Investors, but the News Is Not that Bad

Abstract:
UPS released its quarterly results this morning and investors were disappointed. However, a review of the company's financials indicates that its balance sheet remains strong.

United Parcel Service (UPS) released its first quarter results on Thursday. Per the information on its website, UPS' total revenues for Q1 2012 were 13.14 billion, a $560 million increase over Q1 of 2011. The company's operating profits for this period were $1.57 billion, which is a minor increase over the $1.47 billion it earned in Q1 2011. The uptick in UPS' year over year profits was probably due both to improvements in its operating margins (11.9% in Q1 2012 v. 11.7% in Q1 2011) and a 4.3% rise in total volume. The company touted its increase in earnings per share, which were up by 10% ($0.09) compared to Q1 2011. Part of the increase can probably be explained by the fact that UPS has spent significant amounts of money over the past few months to buy back its shares. In Q1 2012, "UPS repurchased 7.1 million shares for approximately $550 million."

UPS' free cash flows were strong, as it generated $1.8 billion in the first quarter of 2012. The company's strong cash flows should allow it to continue its share buyback program, as well as fund its $.057 per share quarterly dividend.

Investors were not thrilled with the slight increase in UPS' earnings, as the company's stock price lost 1.76% of its value to finish the day at $78.25. Per Reuters, investors bid the stock down because they are worried about the company's ability to maintain sales volumes in Europe and due to the fact that UPS' earnings missed analysts' targets.

While investors were not thrilled with UPS' 2012 Q1 earnings report, many are likely satisfied with the company's stability. UPS pays a $0.57 per share dividend and is spending significant amounts of money to buy back its shares. Just as important, the company is in strong financial shape at this time, so it should be able to weather any downturn in Europe's economy.